Answering Aunt Edna

What goes into the cost of a gallon of fuel?

Prices at the pump are inching up, and Aunt Edna wants to know – “What goes into the cost of a gallon of fuel?” It’s a common topic of conversation this time of year, and it’s the top response the Chevron Advocacy Network receives when we ask what questions you get from the Aunt Edna’s in your lives.

Breaking down fuel prices

The retail price of a gallon of fuel includes the cost of crude oil; the costs associated with refining, distribution and marketing; and costs attributed to taxes and fees. Federal and state environmental regulations also effect the cost of fuel. For example, while state regulations in California result in a cleaner burning gasoline, they also contribute to making it among the most expensive gasolines in the U.S.

Crude oil — This is the biggest cost associated with the retail price of fuel, and the cost of crude oil is largely determined by global supply and demand.

Refining — The cost of refining varies regionally and seasonally for many reasons. One such reason is that demand for fuel increases during the summer months. Fuel costs are also impacted by the type of crude being refined, inputs such as ethanol which help produce the finished product, and additional treatments that may be required to create cleaner burning fuel.

Distribution and marketing — The costs associated with transporting fuel from refineries to consumers are varied. Fuel is often transported by pipeline or truck to terminals near consumer areas, and from there it is delivered by truck to marketers or individual retail stations. Chevron partners with independent retailers who own and operate the majority of our retail stations and set their own prices. Review our recent “Answering Aunt Edna” post on Chevron Gasolines, Refineries and Retail Stations to learn more.

Taxes and fees — The cost of a gallon of fuel includes federal, state and local taxes and fees, which may be imposed upon volume or value of the finished fuels or their components. Federal gasoline taxes are comprised of an excise tax that funds the construction and maintenance of highways and mass transit programs, as well as a tax to support the Leaking Underground Storage Tank Trust Fund and finance the environmental remediation of abandoned storage tanks. State taxes include, but aren’t limited to excise taxes, environmental taxes, and taxes levied for the provision of government services that are intended to benefit drivers and specific environmental programs. Some states, such as California, also impose general sales taxes on finished fuels.

The infographic below has more information about gas taxes, and check out API’s webpage on motor fuel taxes for interactive maps.

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How do seasonal fuel blends impact costs?

To reduce ground-level ozone during the warm summer months, refineries and retail fuel stations switch their gasoline blends beginning each spring. Summer-grade gasoline has less butane and therefore a lower volatility than winter-grade gasoline, meaning it produces fewer evaporative emissions. It also costs several cents more per gallon to produce, and is one of the reasons retail gasoline prices increase in the summer.

This fuel blend switch is required by the U.S. Environmental Protection Agency (EPA), which gives retail fuel stations until June 1 to switch to summer-grade gasoline in most areas of the country. States and metropolitan areas may have additional seasonal fuel blend requirements that could impact what consumers pay at the pump.

We hope this information helps answer the questions you’ll receive this summer about fuel costs.

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